Target Costing

1
Target Costing

• This concept is extensively used in Japan and it
  is based on the principle that a product must be
  priced to win a target share of the market.
• It is known as Genka Kikaku
• The market sets the price.
• A target profit will be deducted from the market
  price to give a target cost.

2
Target Costing

• Japanese management accounting does not stress
  optimising within existing constraints.
• Rather it encourages employees to make continual
  improvements by tightening those constraints
• This is the mechanism of kaizen costing the
  process of small incremental improvements in
  costs and technology.

3
Target Costing

• Japanese companies use cost tables to provide
  estimates of target cost.
• These tables contain detailed cost information.
• Thus reducing the cost of existing products and
  minimising the cost of new products.

4
Target Costing Support Systems

• Sales pricing systems
• Target profit computation support systems
• Research and development support systems
• Support systems for infusing target costs into
  products
• Human motivation and resource systems